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Why the farm bill's crop insurance is a missed opportunity for reducing climate risk

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Sarah Jane Keller | Oct 30, 2013 02:45 PM

This week, Congress is getting back to the big issues haunting the public, including the farm bill, which expired amid the government shutdown. Since the House and Senate have already passed two separate versions, select lawmakers are meeting today to try to reconcile their differences.

The division between the two chambers centers on, you guessed it, the price tag for this massive policy hairball that supports farms, food, and rural development, while serving as the nation’s largest conservation fund for private land. As HCN has noted before, whether to cut food stamp funding from the bill is a major crux of the debate. But agricultural subsidies, which began in 1938, are also up for fiscal pruning. There’s bipartisan agreement on phasing out controversial direct payment subsidies (farmers get them regardless of crop prices or yields). If that happens, the government’s increasingly popular – and for taxpayers, increasingly expensive – crop insurance program will be positioned to become agriculture’s primary safety net.

corn.jpg
Corn stunted by drought. Photograph courtesy U.S. Department of Agriculture, Natural Resources Conservation Service.

But one important aspect of the farm bill’s expense has been absent from the current debate. If predictions of more frequent extreme weather events, like drought, are fulfilled, the federal government’s crop insurance bill will also grow, as it did during the 2012 drought. By ignoring the reality of climate change and its likely affects on agriculture, Congress is missing an opportunity to reform an important, though some say bloated, ag safety net, and to help mitigate risks to taxpayers and the food system.

In the short term, the crop insurance program is set to expand under both the House and Senate farm bills, to cover specialty crops and account for the higher value of organics. But thanks to extreme weather, the program’s costs have grown even without help from Congress. After the 2012 drought, the Federal Crop Insurance Program paid out $17.3 billion in losses, the highest ever, breaking the earlier record set in 2011. Taxpayers picked up about 75 percent of the tab, according to a report released this month by the sustainability non-profit, Ceres.

The U.S. Department of Agriculture acknowledged earlier this year that the industry’s vulnerability to extreme weather is likely to increase and that federal crop insurance is “an increasingly important risk management tool.” Even in 2007, the Government Accountability Office recognized extreme weather-related risks to flood and crop insurance, recommending the Secretary of Agriculture analyze how climate change will affect federal crop insurance over the long term.

Even large private insurance companies are looking at climate risks. As Evan Mills, an energy and environment researcher at Lawrence Berkeley National Laboratory, has pointed out, private insurance is a rare industry that “sees climate change as a threat to its bottom line and sees action as being less costly than inaction.” Some insurers are already trying to manage the costs of climate inaction by doing things like increasing premiums, promoting energy efficient buildings and other adaptations, or including climate change in catastrophe models.

But the goals of the U.S. crop insurance program are different than those of private insurers. Crop insurance is meant to provide affordable coverage for as many businesses as possible, and allows insurance payouts not just for lost crops, but also for lost revenues. So, the USDA partners with insurers that receive multiple layers of federal subsidies, including backing crop insurers’ losses with taxpayer money. That means those companies have less incentive to avoid losses from extreme weather events, and less incentive to encourage farmers to take up behaviors that help them adapt to climate change.

But just because it’s a publicly-funded safety net for agriculture, doesn’t mean crop insurance can’t spur innovations that make agriculture more resilient to extreme weather. A report released this summer by the Natural Resources Defense Council suggests offering lower insurance premiums to farmers who use practices that reduce drought risk. That could include management techniques like no-till farming, cover cropping, and efficient irrigation, which improve soil health and water retention. Conservation programs already in the farm bill do help accomplish these things, but they’re voluntary. By making climate adaptation measures a requirement for receiving federal insurance subsidies, the farm bill could incentivize conservation practices that help reduce insurance payouts.

Instead, we have a program that critics say encourages farmers and insurance companies to take on excessive risks, and passes them on to the public that funds the safety net. But as lawmakers debate the farm bill, asking for forward-looking crop insurance reform is probably too much.

Sarah Jane Keller is an editorial fellow with High Country News. She tweets @sjanekeller.

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